In the Monetary Small Open-Economy Model with a Flexible Exchange

question 7

Multiple Choice

In the monetary small open-economy model with a flexible exchange rate, an increase in the world real interest rate

• A) increases domestic output and increases the nominal exchange rate, as long as real money demand is much more responsive to real income than to the real interest rate.
• B) increases domestic output and decreases the nominal exchange rate, as long as real money demand is much more responsive to real income than to the real interest rate.
• C) decreases domestic output and increases the nominal exchange rate, as long as real money demand is much more responsive to real income than to the real interest rate.
• D) decreases domestic output and decreases the nominal exchange rate, as long as real money demand is much more responsive to real income than to the real interest rate.
• E) increases domestic output and the nominal exchange rate as long as real money demand is much less responsive to real income than the real interest rate.

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Definitions:

Ethics

Moral principles that govern a person's behavior or the conducting of an activity, often applied within professional and personal contexts.

Etiquette

The set of rules or customs governing behavior in particular situations, often ensuring respectful and considerate interaction.

Bad News Messages

Communications that convey unfavorable or negative information to the recipient, often requiring careful wording to maintain goodwill.

Whistle-Blowing

Efforts by employees to report concerns about unethical or illegal behavior.